ANZ shares tumble as full-year profit misses expectations

ANZ Bank (ASX: ANZ) reported a full-year cash profit of $7.4 billion, up 14% year-on-year, fueled by institutional banking and commercial lending growth.

“This is a strong annual result, with record revenue and cash profit following several years of transformation,” said chief executive Shayne Elliot.

“We continued to strengthen our balance sheet and closed the year with provisions for potential credit losses higher than prior to the pandemic, and with more capital than ever before.”

Strong but not strong enough

Despite the strong headline results, ANZ’s numbers were marginally below consensus expectations. The stock is down 3.4% to $24.60 in early trade.

Here are the key takeaways:

Earnings:

• Cash profit up 14% to $7.4bn, below the $7.46bn expected by analysts

• Net interest income up 11% to $16.6bn, below the $17.1bn expected

• Earnings per share up 8% to 247.1c, above the 241.0c expected

• Final dividend of 94 cents per share

• Full-year dividend per share up 8% to 175c, above the 162c expected

• Return on equity up 54 bps to 10.9%, in line with analyst expectations

Earnings by Segment:

• Australian Retail down 8% to $2bn

• Australian Commercial up 19% to $1.46bn

• Institutional up 43% to $2.98bn

• New Zealand up 8% to $1.56bn

• Asia Pacific up 105% to $74m

Net Interest Margins:

• Net interest margins up 70 bps to 1.70%, below the 1.73% expected

• Net interest margins eased in the second half, down to 1.65% from 1.75% in the first

• Home loan pricing competition, unfavourable deposit mix (shifted towards lower margin term deposits) and higher funding costs were the main drags

Asset and Capital:

• Common Equity Tier 1 Ratio up 105 bps to 13.3%, below the 13.4% expected

• Total credit impairment charges of $245m, below the $482m expected

Outlook commentary:

• “The external environment is likely to remain challenging. The full impact of higher interest rates is expected to continue to impact economic activity as well as household and business budgets.” – chief executive Shayne Elliot

• ANZ remains optimistic and expects the economy to be supported by strong household savings, resilient housing markets, low unemployment, solid business investment intentions and strong migration

• “Our customers have so far proven resilient, with a relatively low level of delinquencies despite the current interest rate tightening cycle.”

• Strategic investments include an institutional payments platform, cloud migration and the successful launch of new retail business ANZ Plus

• Suncorp acquisition is ongoing and management remains optimistic about the outcome, ahead of its case before the Australian Competition Tribunal, which is due in February 2024.

A High Bar

Westpac (ASX: WBC) was the first major bank to report its FY23 results last week. It announced strong earnings (net profit up 26% to $7.2bn, in line with expectations), a big dividend and plans for a $1.5 billion share buyback. The stock finished the session up 1.95%. 

This result might have set a rather high bar for bank results. NAB (ASX: NAB) reported stronger-than-expected results (cash earnings up 8.8% to $7.7bn vs. $7.3bn expected) but management warned of ongoing inflationary pressures and deteriorating asset quality. The stock finished the results session down 2.7%. 

There’s clearly little room for error and ANZ is the only major bank that has so far reported earnings that have missed analyst expectations.